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Case Studies - Coal/Extractive
Bankruptcy/Business Reorganization
Case Study A
Engagement
In 2002, the Plaintiff had formed an agreement with the Defendant to supply them with coal for the Defendant's production of energy. In 2005, mining and financial difficulties curtailed the Plaintiff's ability to mine coal, and the Plaintiff and Defendant signed two inter-related agreements.
The first 2005 agreement supplied the Defendant with coal under terms revised since the original agreement; the second 2005 agreement supplied a related party of the Defendant. In addition, a settlement agreement was signed in 2005. It acknowledged default and related damages to the Defendant under the 2002 agreement, but the Defendant agreed not to seek recovery for those damages so long as the Plaintiff satisfied the first of the new agreements.
In February 2006, the Defendant notified the Plaintiff that the new agreements were terminated, as they alleged that the Plaintiff was insolvent and unable to pay its debts; the Defendant demanded approximately $90mm in damages as a result of the alleged breaches of contract.
The Plaintiff has since filed for bankruptcy and is currently undergoing liquidation under Chapter 7. Its trustee has filed separate actions alleging that the Defendant's repudiations of the new agreements constitute a material breach, that the Plaintiff has incurred financial damages related to the breaches, and that the $90mm of indebtedness be eliminated and the Defendants' claims against the estate be disallowed in their entirety.
Gleason's Role
Gleason & Associates was retained to determine (1) if the Plaintiff was insolvent and unable to pay its maturing debts as of the date the Defendant executed and terminated the first 2005 agreement; (2) the damages experienced by the Plaintiff as a result of the alleged repudiation and breach; and (3) the damages experienced as a result of the Defendant's alleged tortuous interference with the second 2005 agreement.
Results
Gleason & Associates determined that the company was insolvent and unable to pay its maturing debts as of the execution and termination dates of the first 2005 agreement. Gleason & Associates also determined that the Plaintiff, in the event of the Defendant's liability, incurred total contract and indemnification damages of approximately $111mm.
Lastly, Gleason & Associates determined that the Plaintiff incurred consequential damages associated with the Defendant's tortious interference with the second 2005 agreement equal to $78mm.
Case Study B
Engagement
The Plaintiffs alleged that the Defendant incurred obligations under notes that transferred an interest in its assets without receiving equivalent value. As a result of the transfer, the Plaintiffs alleged that the Defendant either became insolvent, or was left with an inadequate level of capital to operate its business. As such, the Plaintiffs argued that the Defendant's obligations under the notes, and the security interest it granted to secure those obligations, were avoidable and constituted fraud.
The Plaintiffs retained a consulting firm to evaluate the financial position of the Defendant; the firm concluded that the Defendant was insolvent at the time the notes were issued.
Gleason's Role
Gleason & Associates was retained to review and respond to the Plaintiffs' position that the Defendant was insolvent as of the issuance date of the notes and to determine if the Defendant was insolvent at the time the notes were issued, or if it became insolvent as a result of incurring obligations under the notes.
Results
Gleason & Associates concluded that the Defendant was solvent at the date of the issuance, and that Plaintiffs' position regarding the Defendant's insolvency was unreasonable, unreliable, and not in accordance with generally accepted valuation practices.
Gleason & Associates opined that consulting firm's analysis and conclusions regarding the Defendant's insolvency were inappropriately premised upon the sale price of the Defendant, approximately one year after the date of issue.
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